National Bank has a $200b of Adjustable Rate Mortgage (ARM) as assets on its balance sheet. The interest rate on the ARM is 3%+Libor. As a result, the bank will receive floating interest. The bank is considering hedging the risk in the interest income from the assets with a three-year interest rate swap. What should be the banks receipt and payment cash flows in the swap?

Select one:

a. The Bank should pay Libor and receive Libor interest rate.

b. The Bank should pay Libor and receive fixed interest rate.

c. The Bank should pay fixed and Libor fixed interest rate.

d. The Bank should pay Libor and receive Libor+3% interest rate.

e. The Bank should pay fixed and receive fixed interest rate.